Qantas sees higher 2011 earnings but international loss

By IBT Staff Reporter On 06/21/11 AT 10:48 PM

Qantas Airways expects its full-year earnings to come in close to market expectations but faces heavy losses on international routes and continues to grapple with rising fuel prices and flight disruptions, it said on Wednesday.

Qantas shares, which had fallen to two-year lows last week, rose as much as 3 percent on investor relief the earnings forecast was not as bad as some had expected.

Investors were also relieved after Qantas said it had reached a settlement with engine maker Rolls-Royce and would book a gain to offset losses from the grounding its Airbus A380 fleet following a mid-air engine explosion last year.

Qantas expects a pre-tax profit for the year ending June 30, 2011, between A$500 million and A$550 million ($528 million-$582 million), up from A$377 million a year earlier but under broker consensus of A$554 million, according to Thomson Reuters I/B/E/S.

Analysts had already started paring back forecasts after the airline last week trimmed its capital expenditure plans and reduced its capacity growth plans.

Qantas expects its international business to record a pretax loss of A$200 million in the 2011 financial year and it would now conduct a strategic review of that business.

Media speculation has been growing that Qantas is considering setting up a new premium carrier based in Singapore.

Qantas International is the Group's weakest business - it has achieved required returns only three times in the past 15 years. Clearly the situation is not sustainable, Chief Executive Alan Joyce said in a statement.

However, we are developing a long-term strategy aimed at restoring competitiveness and profitability, Joyce added.

Flight disruptions due to an ash cloud from a Chilean volcano would cost the airline A$21 million based on estimates made Monday, Qantas said, nothing there had since been further disruptions.

Flooding and a cyclone in Queensland state, Japan's tsunami, an earthquake in New Zealand and the Chilean volcano were expected to have a financial impact of A$206 million, up from earlier guidance of A$140 million.

However, the settlement with Rolls-Royce was expected to add A$95 million to 2011 accounts, it said.

Last week Qantas announced A$700 million in spending reductions, cutting its domestic capacity growth to 5.5 percent, down from an earlier target of 8 percent.

With pilots threatening strike action, costs soaring and the Australian economy going through a soft patch, Qantas has been under pressure to take decisive action, with some analysts suggesting its credit rating could come under pressure.

The airline has already offered cabin crew voluntary redundancy in the hopes of cutting 350 jobs and has raised domestic and international fares several times with its fuel bill having soared to A$3.7 billion.

In the ten months to end-April, total passenger numbers at the Qantas group rose by 8.1 percent but the bulk of that increase was produced by budget arm Jetstar while Qantas international passenger numbers grew just 1.9 percent, Qantas said earlier.